Seattle's Coffee King -- In The Beginning Was A Quaint Little Roasting Company. Then Came Howard Schultz
THE SUBJECT IS COFFEE. THE TANGENT is baseball.
To understate the obvious, Howard Schultz loves baseball. He loves the chalk of the basepaths and the parallel lines etched in newly cut grass. He loves Mickey Mantle, the sounds of a game being called on the radio ricocheting off buildings and sidewalks, and the way a game can suspend worry and want for nine innings.
Schultz can and will talk baseball almost anywhere, almost anytime. Such digressions, in this instance on a Wednesday afternoon at his office south of the Kingdome, are to be expected and seem typical of the boyish excursions men in middle age can be prone to. Most boys who grew up in New York in the 1960s had the voice of Phil Rizzuto in their heads and wanted to play center field for the Yankees, and Schultz was no different.
He has ignored his cup of French press, and by the time he has finished with Mantle, Willie Mays and Duke Snider, it has become hopelessly cold and the conversation (it was, according to the notes, about coffee) has been forgotten somewhere, unseated by a sharp left on a sentimental journey.
It is a moment of weakness for Schultz, if only because it seems to have nothing to do with being the chairman and CEO of Starbucks. Though his company is famous, his own face and name intentionally aren't. Mistrustful of exposure, he would rather be invisible, seeking to avoid being misunderstood rather than to be understood. So. He loves baseball. That is a discovery.
Even his asides should be heeded, as the mind of Howard Schultz, 43, is like a subway during rush hour. Hundreds of thoughts trying to pass through one door at the same time, each one with a destination and a purpose despite the apparent chaos. That would help explain Starbucks, his coffee-tea-beer-soft drink-compact disc-ice cream-anything-you-care-to-dream company.
The success of Starbucks is about so much more than selling coffee. It sells a mood, it sells a memory, it sells romance, it sells life in carefully crafted, cappuccino-length episodes. It has given people a way to articulate themselves through a beverage of roasted beans and hot water. It has given them ritual and places to gather. Its role as merchandiser of the metaphysical - for a predecessor there is perhaps Nike - depends on its ability to be more than a brand of coffee.
The ubiquitous chain, which celebrated its 25th anniversary last October, has grown from 11 stores when Schultz bought it in August 1987 to more than 1,000. He has leveraged a wholesale and retail bean outlet into beer brewed with coffee, coffee ice cream, bottled soft drinks, jazz compact discs and cookbooks. The value of Starbucks stock is now about 10 times what it was in 1992 when it was first offered to the public.
"Howard Schultz is it in retail," said Michael Moe, director of growth stocks at San Francisco-based Montgomery Securities. "It's not unusual to see a guy with vision and guts build a small company to a certain point. But he continues to grow with the company. He's clearly the guy setting the direction for that company."
Schultz, with only a bachelor's degree in business, has become the entire Starbucks food chain, from importing and roasting beans to getting the Starbucks name on cookie jars, beer bottles and a compilation of blues singers.
"There aren't very many entrepreneurs who stay with their company and continue to run it when it starts earning billions," said Dori Jones Yang, a reporter for Business Week magazine who is co-writing Schultz's autobiography. "The skills it takes to found a company are not the same skills it takes to run a company. He had to develop them at warp speed."
People who have made their investments with him describe him in heroic proportions: confident, a true rags-to-riches story, a humanitarian, a man who finds true meaning in his work, a man of his word. For a man with his kind of power, he is also surprisingly self-conscious.
"He really wants you to like him," a Starbucks employee said.
Growth, on the scale exercised by Starbucks, comes at a price, be it angry townsfolk who don't want corporate America (no matter how quaint the corporation) in their neighborhood, or one of Starbucks' many smaller competitors, who see Schultz as Napoleon trying to disguise himself as Alfred Nobel.
THE TRUTH ABOUT SCHULTZ is that as much as the average person will ever know him, he is an exemplary American. He is very likable. He makes people laugh. He is self-made from a world that gave him few advantages. He has been married to the same woman, Sheri, for 14 years and considers himself the far luckier of the pair.
He boasts that Starbucks gives medical insurance and stock options to even its part-time employees. It donates $250,000 a year to CARE, making Starbucks that charity's largest donor in North America. Profits from its Rainier Avenue store are given to Seattle's Zion Prepatory Academy.
Schultz might be a philanthropist, but more so he is a businessman. Starbucks expects to do about $1 billion in sales in 1997, with no letting up on its goal of operating 2,000 stores by 2000. Schultz is worth more than $100 million (about $75 million of it in Starbucks shares). To put the number in perspective, he is one-fourth as rich as Oprah Winfrey but richer than he feels comfortable admitting.
Starbucks is generally a faceless company, and outside of it, few people know who Schultz is. On a recent Sunday afternoon, he was served without fuss at a store less than a mile from his house, the cashier oblivious to who he was. Schultz protects his low profile, especially so after his driveway got him sued.
The driveway to the $1.4 million house he and Sheri built in Madrona in 1991 became the object of a highly public, vigorously debated lawsuit. Small and weedy Viretta Park on Lake Washington is like many seemingly inconsequential parks in the city except that a driveway runs through it. It has always been there, though no one paid it much notice because it was a gravel path. The city gave the Schultzes access to the driveway, without which their property was landlocked by the park. Schultz upgraded the driveway, and the cause began. Nearly everyone, including the city, looked bad.
The Schultzes have since reduced the driveway, removing a concrete retaining wall, for instance, but the case is still in court. Once it is settled, Howard and Sheri Schultz and their two children will move to Madison Park, hurt and angry. Howard Schultz is indignant because in his mind he has given Seattle so much more than he has taken from it.
"Moving out of the city would send the wrong signal," he said. "Not that we haven't thought of it. Most of our neighbors have been great."
The clash can perhaps best be described as a cultural misunderstanding. Schultz is like a lot of guys who grew up in the concrete jungle whose idea of achieving the American dream includes having a big driveway to go with his big house. In New Jersey or Los Angeles, the same driveway probably would have been unnoticed, or perhaps admired. The sanctity of mud and blackberry bushes is unique to Seattle and not always understood by outsiders. Schultz might as well have erected Versailles on the lake.
The experience has made him especially nervous for his family. His wife, his young son and daughter, would have to be left out of this story. Same for his mother, brother and sister, all of whom live in New York. His home in Madrona was off limits.
EMPLOYEES KNOW HIS FAMILY because he has brought them to stores and to company functions. Around them, Schultz is attentive and physically affectionate.
His closest co-workers know him as intense and highly emotional, which make him both human and someone to reckon with. Howard Behar, a company executive, and Schultz have cried together twice, in Tokyo at the opening of the first overseas Starbucks when they saw 100 Japanese waiting in line, and in Schultz's office when a manager revealed he was dying of AIDS.
Behar and Schultz have had arguments so cutting and protracted - business, never personal - that Behar wonders why Schultz didn't fire him. Schultz smiles, saying that above all he values "creative conflict . . . I don't want an organization of yes people."
Schultz's chief buyer of beans, David Olsen, knows two halves of Schultz. There is the half he will never cross.
"If you betray him," Olsen said, mindful of the power of Schultz's resolve. " . . . I don't intend to. It would be cold out there."
There is also the boyishly energetic side of Schultz that greeted Olsen when the two first discussed the possibility of working together in a business that would become Il Giornale, Schultz's original coffee-bar chain, the prototype for the modern-day Starbucks. The mood was that of a "kid's birthday party," Olsen said, as Schultz, the kid from Canarsie (a Brooklyn neighborhood), and the kid from Deer Lodge, Mont., got on their hands and knees to plan the first store.
It would be tempting to call Schultz a regular guy because he sets reliable screens in his weekly pickup basketball game, because he wipes his hands on his pants, because he timidly introduces himself to employees with this: "Hi, I'm Howard."
But Schultz is nothing like a regular guy. At the company and in the greater business community, he is regarded as a wizard.
"He sees things that can be," said Behar, president of Starbucks International. "He makes connections between things that other people don't get."
HIS VISION WASN'T ALWAYS taken as gospel. Schultz was hired as Starbucks director of marketing in 1982. When he came back from a business trip to Italy in 1983 with ideas of mimicking its espresso bars in America, his bosses were reluctant. In 1984, they experimented by opening a coffee bar at their downtown Seattle store at Fourth and Spring. But they had no desire to manage a company as large and elaborate as the one Schultz envisioned.
"I was mesmerized by the coffee culture in Italy," Schultz said. "I would go back the same time the next day and see the same people. Few of them knew each other. All this was made possible by this conduit. It hit me so immediately.
"Starbucks was missing a significant opportunity to extend what it does. You can imagine my frustration."
He quit Starbucks in 1985 to put to life his epiphany in Italy. He spent most of that year raising start-up money. He was unemployed and his wife pregnant, supporting both of them. He needed people to invest in an idea his former bosses wouldn't entertain (though they helped Schultz get started). Of the 242 people he solicited, only 23 put up money, including real-estate developer Jack Benaroya and Jeff Brotman, chairman of Price/Costco. Schultz raised $1.7 million and began brewing Starbucks beans at a small chain of coffee bars he called Il Giornale, named after the newspaper he saw everyone reading with their coffee on his trips to Milan and Verona. The first store opened April 8, 1986.
"Howard sold himself first," Brotman said. "People like myself don't make investments with people who are in it for the transaction. We're looking for someone who is passionate about their business. Howard projected to me complete confidence in his idea and his ability to carry it off."
By 1987, Schultz had raised $3.8 million and used it to buy Starbucks from its original owners, Gordon Bowker and Jerry Baldwin. The third original owner, Zev Siegl, had been bought out in 1980 by his two partners. Schultz was 17 when Bowker, Baldwin and Siegl had lunch at a French restaurant in downtown Seattle and noticed with great curiosity that two of them had coincidentally ordered coffee beans by mail that week. That was the conversation that begat Starbucks.
"I have nothing but admiration for what he has done," said Siegl, now a consultant to a software company. "I consider Howard the founder of the modern-day Starbucks."
Baldwin now runs Peet's Coffee & Tea, for 30 years a retailer of gourmet beans in the Bay Area of California. Bowker is on the board of directors at Peet's and at Red Hook Brewery. Relations between Schultz and his former bosses (Siegl aside) are best described as grudgingly cordial.
Bowker did not want to discuss Schultz or Starbucks, saying he did not want to "fan the flames." Baldwin made himself unavailable.
To invert an insult, these are men who don't rub each other the right way. Schultz did not endear himself by boldly challenging Peet's in its own territory.
"We had to expand into Northern California," Schultz said. "We couldn't ignore that market."
THE COLD LINE THAT separates Schultz from his company's founders belies their shared reverence for coffee. Both at Peet's and at Starbucks, they talk about its art and mystique. What sets apart Schultz is his ambition, one that comes partly from growing up where the ceiling of possibility hung low over the head of a young boy and his expectations.
"I was chasing my dream," Schultz said. "The odds must have been a trillion to one against me. People my whole life would say you can't get out, you don't have the pedigree. But, you know, it's still America."
Schultz's former colleagues at Starbucks are English majors from the University of San Francisco. They named the company after a character in "Moby Dick." Schultz majored in business. They saw the business as a way to a cup of good coffee. Schultz saw the coffee as a way to return triumphantly to his native New York.
Schultz saw his world from the seventh floor of a small, government-subsidized apartment he shared with his parents and two younger siblings. He did not have his own room until he was 20 and in college. He never lived in a house until he and his wife bought their first on Capitol Hill.
His neighborhood taught him group loyalty, but also that your own interests must sometimes split from it. Friends watched each other's backs. At the same time, Schultz said, you had to be tough because it was not always obvious who your friends were.
He is proud of being a child of the projects, of living in a building of 150 apartments with only one elevator, of being the first in his family to earn a college degree. His grandparents were laborers; his father, Fred Schultz, drove trucks and taxis and worked in factories, retiring without a pension.
Schultz described his father as a prisoner of his own insecurities, a compromised man too tired to be bitter. Schultz has confided to his friends that he never could fully please his father, who died seven years ago of lung cancer before Starbucks proved itself.
"He wouldn't have believed it," Schultz said.
Elaine Schultz, on her first tour of her son's company years ago, asked, "Do all these people get paid?"
Howard Schultz's first job after college was in Manhattan as a salesman for Xerox, or more accurately, making cold calls for a salesman at Xerox. He made 50 calls a day and $800 a month.
His second job was selling housewares for a Swedish company called Hammerplast. Starbucks was one of his customers. Schultz's talents were obvious then, leading Starbucks to offer him a job. He and Sheri and their golden retriever made the drive across the country in an Audi 5000.
Starbucks was 11 years old when Schultz was hired in 1982. It was a place you went to buy only beans. Five stores existed, four in Seattle, one in Bellevue. Expansion was a faint idea whose horizon ended in Portland. Soon the sun that revolves around Starbucks will set behind Singapore.
WHEN A STARBUCKS STORE opens, a neighborhood happens. At 11 p.m. at the University Village store, every table is taken mostly by students doing homework. The scenes are similar in other neighborhoods. Schultz's coffee shops have essentially given people a place to hang out where few existed before, save for a few diners. But even there, ordering "just a cup of coffee" and lingering for hours might be frowned upon. At Starbucks, it's what you're supposed to do.
In his corporate language, Schultz calls them "a third place," away from home or work, where people can go. Setting itself apart from taverns and restaurants, coffeehouses are places where it is normal to sit alone. This was the theory upon which his entire coffee bar venture was based. Turns out he was right. Even the company's own employees can't resist having an espresso at their neighborhood store, though they get all they can drink at work.
His pet department is research and development, which most recently developed the extract put into bottled Frappuccino, ice cream and the company's first flop, Mazagran. The carbonated coffee beverage was recently taken off store shelves.
R & D is off limits to most Starbucks employees. There, people wearing lab coats and operating mass spectrometers are developing the technology that will make a fresher cup of coffee or Starbucks' next big innovation. All ideas are well-guarded secrets.
Randy Schaffer is a chemist who quit a job of 12 years developing cancer chemotherapy treatments at the Fred Hutchinson Cancer Research Center. He went from saving lives to preserving the aroma of ground coffee. These days he is distilling the chemical components of a coffee bean, measuring its properties, in hopes of understanding it on a cosmic level.
The decision to leave Fred Hutchinson was agonizing. The memories of the lives he changed are not soon gone. No, his move to Starbucks was a function of Schultz's infectious love for the business. Only he could convince a chemist that coffee is as soulful a pursuit as treating cancer.
"I remember coming in to meet him," Schaffer said. "I expressed reluctance. I don't know what he said. All I remember is that after talking to him for 15 minutes, it was `OK, fine, I'll start tomorrow, I'll start now.' Howard is amazing."
Schultz had a little head start. Schaffer had long frequented the Starbucks store on First Hill.
Other employees hired away from fully rewarding jobs reported similar seductions, all of which ended with the irresistible opportunity to be a part of something better than themselves. To work with Schultz, Behar said using Schultz's brand of metaphor, is to know that the most valuable player is on your team.
MOST SUNDAYS SCHULTZ PLAYS full-court basketball with other men approximately his age. While it is not clear from his skills that he ever was a basketball player, it is clear he was an athlete because he thinks the game. And he hates to lose.
As a quarterback at Canarsie High in Brooklyn, Schultz had decent speed, decent size, a very strong arm and that intensity that coaches covet. While scouting an opposing player, a coach from Northern Michigan University saw Schultz and offered him a scholarship.
Sports are a natural part of Schultz's mental landscape. He grew up with them, asserted himself through them, measured himself by them, and made friends through them. He talks often in sports metaphors and extracts wisdom from his sports heroes.
One of them is Branch Rickey, long ago the president of the Brooklyn Dodgers. Rickey brought to baseball its first black player, Jackie Robinson. He did more than sign Robinson; he planned carefully, passing up more talented black players to make sure he found one with the fixity and strength to endure the torture the rest of the world would subject him to. Schultz would call this doing the right thing. He would also call this "investing ahead of the curve," the same strategy that took his company to 1,000 stores and into a million imaginations.
Schultz is a better businessman than quarterback. As a freshman he reported to summer practice at Northern Michigan only to have his jaw shattered the first week by a linebacker who sacked Schultz from his blind side, ending his unborn college football career. His jaw never set right, finally forcing him to have surgery and wear braces when he was 38. The injury aside, Schultz quickly got the impression his competition was far better than him. He went against his nature and did not try to prove himself wrong.
His old backfield coach, Frank Novak, now coaches special teams for the Detroit Lions and has long forgotten the tall kid from Canarsie.
"Who is he?" Novak said. "I don't remember the guy."
Nor has he yet tasted a latte.
"Starbucks? I'm not sure what that is."
Hugo Kugiya is a staff reporter for Pacific Magazine. Gary Settle is a Pacific photographer and photo editor.
Unpublished Correction Date: 01/31/97 - This Pacific Magazine Profile Of Starbucks CEO Howard Shultz Incorrectly Described Access To His Property Near Viretta Park. There Is A Pedestrian Access, But Not Vehicle Access, From 39Th Avenue East.
Copyright (c) 1996 Seattle Times Company, All Rights Reserved.